Slow growth in France, however, has raised the burden on the country’s generous welfare system. The upshot? Spending cuts are difficult and many local authorities will raise taxes next year to finance their needs.

France’s “departments”–local governments responsible for paying some welfare payments–underscore the point. As unemployment has risen following the euro-zone debt crisis and ensuing economic slowdown, a growing number of people have become dependent on France’s minimum subsistence grant, the RSA.

The cost of the RSA is expected to reach €8.74 billion ($11.82 billion) in 2013, a 46% increase from 2008 when unemployment was as low as 7.5%, according to figures from the assembly of France’s departments, the ADF. The latest figures show unemployment in France has reached a 15-year high of 10.9%.

Governments in developed economies raised income taxes last year in an effort to cut their budget deficits, reversing a decade-long decline in the share of labor costs accounted for by the state, the Organization for Economic Cooperation and Development said Wednesday.

In its annual Taxing Wages report, the OECD said the tax wedge rose in 26 of its 34 members during 2011, and fell in seven. The tax wedge is the proportion of labor costs accounted for by the state in the form of income taxes and social security contributions from both employers and workers.

The OECD said real wages before tax fell in 18 of its members during 2011, with by far the sharpest decline taking place in Greece, where pay fell by 25.3%.

Countries caught up in the euro-zone debt crisis must “pay their bills” but also ensure that the state is large enough to play a significant role.

These are the thoughts of Professor Jeffrey Sachs, the director of the Earth Institute at Columbia University, who told WSJ.com that it is a dangerous situation if governments cannot carry out basic services. However, he does support austerity policies.

In the interview, Mr. Sachs warns that countries who succumb to increasing pressure to attract foreign capital by lowering tax rates are entering into a race to the bottom that will ultimately undermine their economies.

He is critical of countries like Ireland that offer low-tax regimes to attract overseas corporations and is even more disapproving of the behavior of the companies that take advantage of the low-tax regime: “Ireland lived off a tax policy that said ‘come bring your investment capital here we won’t tax it,’ and it also opened up massive abuses because a lot of U.S. companies put their corporate headquarters in Dublin and then used that as a base to channel even more of their resources to the Caribbean—basically a gaming of the international system.”

Mr Sachs highlights in the interview how Google has taken advantage of this status: “Take a company like Google which has an arrangement with the Internal Revenue service in the U.S. to park a lot of its international earnings in Bermuda and that is channeled through the international corporate headquarters in Dublin.”

The economist claims in his latest book, The Price of Civilization, that the U.S. is in demise and that the state needs a more prominent role in order for its economy to compete in a world where jobs are being lost to emerging economies.

Ironically, in the preface to the book he suggests that the European “social democratic” model is one that the U.S. can learn from. But things have changed considerably since June 2011 when the preface was written.

Watch the interview to hear Mr. Sachs’ response on this, the Occupy London and Wall Street protests and the euro zone crisis.